The energy secretary of Brazil's Sao Paulo state said Wednesday that the purchase of power distributor Eletropaulo Metropolitana (E.EPM) by U.S. power group AES Corp. (NYSE:AES) in 1998 was done within the legal framework of Brazil's privatization program and shouldn't be reviewed.
"There's no need to review Eletropaulo's privatization process because there was never a prohibition of agreements among the bidders," Mauro Arce told journalists Wednesday, adding that the government was more concerned about setting a fair minimum price for fear there would be just one bidder at the auction.
"So in some auctions there were understandings of that kind," he added, referring to an alleged deal between AES and Enron Corp. , another bidder in the Eletropaulo auction, to allow AES to win the asset for the minimum price of $1.78 billion.
The official said that from the point of view of the government, it would have been good to have a premium on Eletropaulo's sale, but the key was to have at least one bidder that was truly interested in buying the asset.
"We know that in privatization auctions you may have 20 interested bidders, but in the end very few deposit the guarantees to participate and just one or two actually bid for the asset," Arce said, adding, "That's what happened with Eletropaulo."
Arce was the energy secretary at the time of the auction in 1998 and also a member of Brazil's privatization committee.
Market watchers feared the accusations would interfere with AES's debt negotiation talks with Brazil's development bank BNDES. The U.S. power group is fighting to keep control of Eletropaulo after defaulting on more than $400 million in loan payments to the bank.
BNDES said Tuesday it rejected yet another debt-rescheduling proposal by AES because the company refuses to pay part of its overdue debt. But BNDES President Carlos Lessa said the bank and AES are still trying to reach an agreement.
In the meantime, BNDES has started a process to take back control of Eletropaulo, which would be sold in an auction as soon as August. The controlling block of shares in the utility were given to BNDES as a guarantee for the $1.2 billion loan that AES took out to buy Eletropaulo in 1998 and the defaults have opened up the possibility of foreclosure on the asset.
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